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What is Leveraged Buyout – LBO

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Leveraged Buyout Definition

What is an LBO
A leveraged buyout is a process when you borrow a significant amount of money in order to complete the acquisition of another company. Now, since the amount of loans taken for acquiring the company is pretty high, so to pay them off, the assets of the acquired company are put to use. They are often kept as collateral for the loans to the creditors. Sometimes, the acquiring company also uses its own assets to keep as collateral for the loans. Now, the main reason behind this buyout is to make sure that when a company is being acquired, the acquiring company is not committing a lot of capital.

The best book to learn about LBO is: Investment banking valuation leveraged buyouts and mergers and acquisitions:

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Historical aspects regarding Leveraged Buyout

The infamous history of leveraged buyouts suggests that they hadn’t been much success in the past. Most importantly, when the 1980s are kept into account, there were various much important buyouts that happened and led to the eventual bankruptcy of acquired companies. Mainly, this was because of the pretty high leverage ratio that amounted to almost 100%. The interest payments were also so large that the operating cash flows of the company just couldn’t make it to meet the exceedingly high amounts and thus, they eventually got bankrupted.
One of the largest LBOs on record was in 2006 when Kohlberg Kravis Roberts & Co. (KKR), Merrill Lynch, and Bain &Co. acquired the Hospital Corporation of America (HCA). The three companies had to pay a whopping amount of $33 billion in order to acquire HCA.

What are the reasons behind LBOs?

When a company is taking so much loan just to acquire another company, it raises questions and puts the acquiring company’s finances at great risk. So, one does wonder about the reasons behind such a buyout. Well, there are three important reasons why companies come to this point.

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1. The first reason is when the company wants to take over a public company and make it private
2. When someone is trying to sell a portion of his existing business for its spin-off.
3. The third reason might be the transfer of any private property or the case where a small change is to be made in the ownership of a specific business.
However, in all cases, there is one common requirement that the acquired entity must be a profitable and growing venture. So, spending all the large amounts and acquiring all the loans are worth it.

Break down of LBOs
Usually, there is a ratio of 10% equity to 90% debt in an LBO. Due to the excessive ratio, usually the bonds issued in this buyout are referred to as the junk bonds instead of the investment grade. Moreover, a lot of people are of the view that the tactic of LBOs is highly predatory and ruthless because the target company never actually sanctions it. Moreover, it is pretty much ironic that the assets responsible for a company’s success are actually being used against the same company by the predator company as collateral.

The process of LBO – How does a leveraged buyout take place?
The leveraged buyouts often contain many complexities and hence they take some time for completion. For instance, consider the example of the JAB holding company. It is a private firm that makes investments in healthcare companies, coffee, and luxury goods. In May 2016, the JAB holding company started the leveraged buyout of Krispy Kreme Doughnuts, Inc. The acquired company came at a whopping price of $1.5 billion, out of which there was a leveraged loan of $350 million along with a revolving credit facility of $150 million through the Barclays investment bank.
However, the Krispy Kreme Doughnut Inc. already had a debt on its balance sheet which was also needed to be sold. Barclays made it more attractive by adding an additional 0.5% interest rate to it. Thus, the LBO was made quite intricate and the deal was almost canceled. Nevertheless, on July 12, 2016, they went through with the deal and closed it.

Attractive aspects of LBO

An LBO generally represents a win-win situation for banks as well as financial sponsors, thus they are quite attractive. In the case of a financial sponsor, he can employ the leverage and thus enhance the rate of returns on his equity. The banks can also make it different from corporate lending and thus attain some significantly high margins by supporting the finances of LBOs. This is because the banks will be charging much higher interest. Moreover, the banks can obtain security or collateral too as proof or surety that they will get repaid.
In a leveraged buyout the managers of a firm, its employees, or other investors attempt to used borrowed funds to buy out the firm stockholders.
How much amount can the banks provide for an LBO
As mentioned, the LBO requires a lot of debt and this depends on how much amount the banks are actually willing to provide for supporting an LBO. The amount varies and is dependent on several factors that are mentioned as follows:
• Overall economic environment
• The quality of the company that is being acquired i.e. whether the operating cash flows of the company are stable, its history, the prospects of growth, and the hard assets, etc.
• The experience and history of the financial sponsor.
• How much equity is being offered by the financial sponsor.
Characteristics of leveraged buyouts
The leveraged buyouts greatly differ in many aspects. However, some characteristics are there that hold true in almost every LBO mentioned as follows:
• Strong management team – The chief executives will have worked with each other and by rolling over their shares in the LBO deal, they might have some vested interests.
• Relatively lesser existing debt – The private equity firm will add up more debt in the capital structure of the company which is to be repaid over time. Thus, this results in a lesser effective purchasing price. If the company already has acquired a huge debt balance, then the deal is very tough to be closed.
• Relatively lesser fixed costs – the fixed costs are to be repaid even if the revenues of private equity firms decline, thus the fixed costs pose risk for the private equity firms.
• Stability in cash flows – the acquired company in the LBO must have a stable operating cash flow.

Commodities are Volatile Assets

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What is the difference between an asset and a commodity?

Answer: All commodities are assets, but not all assets are commodities because assets are wide term.

Are commodities financial assets? Yes, generally commodities are financial assets and can be defined as any good or service that is bought and sold purely on price.Usually when we say commodity we think on a raw material or primary agricultural product that can be bought and sold, such as copper or coffee

Make the trade

Volatility and high returns go hand in hand. Assets are property or something that is of value. There are different types of intangible and tangible things that are assets. However, in the trading and investing world, there are different classes of assets. The volatility of an asset is a huge concern for those that trade or invest capital. The prime variance of the asset is volatility over time. The higher the volatility, the wider the price ranges in terms of the long term period. There are assets that are more volatile as compared to others and what makes a market attractive or unattractive is the variance of the market as different investors have a different risk profile.
One of the most important factors, for the consideration of which asset to trade or invest in, is the variance of the asset.

Just about everyone has heard of commodities. They are a unique type of asset, which provides returns that are entirely independent of bond and stock returns. Adding various types of commodity will help one diversify its portfolio of bonds and stocks which helps lower the risk of the portfolio significantly and increase returns. Commodities are a rare type of asset which can even hedge from inflation due to their impact on the price of goods.

So what’re Commodities?

In order to understand commodities, one needs to understand what they entail. They can be thought of as raw materials that are used for the creation of consumer goods such as aluminum, silver, gold, natural gas, oil, wheat, and cattle. They are available in just about every single industry which is why they are referred to as commodities. One can also find soft commodities that are stored for a shorter period of time such as coffee, cocoa, cotton or sugar.
commodities
From the beginning of time, the commodity market has evolved greatly when there used to be a time that farmers would store apples and sell in the market if the prices went up. Then, during the 19th century, the demand grew for standardized contracts to ensure that the commodity prices could be fixed or agreed upon. Therefore, the development began of the commodity futures exchange. These days, options and futures contracts are easily traded on different exchanges in various parts of the glove and deal in a huge variety of energy, metal and agricultural products as well as for soft commodities. The price risk is offloaded to the end-users due to the standardized contracts and it helps the commodities producers significantly.
Ever since the last end of the 20th century, the commodities have undergone rapid change as an asset class. The commodity futures indexes were developed as well as the benchmark of the indices with the investment vehicles. Now, investors have the opportunity to select from a range of vehicles in order to invest in the futures market of commodities, from notes to mutual funds or exchange-traded funds, which cover the vast spectrum from broad-based commodity exposures to single based, and even sector-based commodity exposures.

Why Should One Invest in Commodities?

The commodity market is huge and it offers some of the best risk-free returns due to its nature. It is used as a hedging tool in times where the inflation rate is unpredictable and increasing by the day. There are three main benefits for investors if they invest in commodities, namely return potential, diversification and inflation protection. These three are vital for a powerful portfolio.

Trading made simple

As commodities are just like real assets, they would reach differently to the changes in economics as compared to bonds and stocks, or financial assets as they are referred to. For example, we know that commodities tend to profit from the rise in inflation, and are only one of the rare asset classes that do. Furthermore, the price of the services and goods increases as their demand increases, and so will the price of the commodities, almost in unison to the changes in demand. Since the price of the commodity rises as the inflation accelerates, it may be best for one to invest in commodities to hedge from inflation.
On the other hand, bonds and stocks perform better when inflation is slowing or stable. When the rate of inflation rises fast, it leads to the lowering of future cash flows value that is paid by bonds and stocks as the future cash would only be able to buy fewer services and goods as compared to today.

Commodities and Volatility

Active traders are attracted to those assets which have a much higher degree of volatility as compared to investors. More short-term and speculative trading activity is attracted when the price of the asset is highly volatile. Therefore, the markets that experience high price variance are a trader’s paradise as they yield opportunity for the immediate future and on the other hand, they can be an investor’s nightmare as they seek earnings that are steady.
There are different classes to choose from when it comes to the more popular markets that attract different participants. Commodities, currencies, bonds and stocks are the four most popular classes which provide a different range of volatility.

The Market

It is due to these reasons that the commodity index of Goldman Sachs, Credit Suisse, and Bloomberg has been independent largely from bond and stock returns in the past, and only correlated positively to inflation.
If we look at the period from 1970 to 2015, the annual returns had a low correlation with the U.S. equities on the Bloomberg Commodity Index and there was a correlation that was close to zero with the global bonds. They were, however, positively correlated to the US CPI.
Even though the correlation of equities to commodities experienced a pickup after the global financial crisis, it was only the result of the decrease in total demand which impacted many of the asset classes and resulted in a higher correlation between the two. However, since the period, commodities are responding once again to supply factors. It is due to the geopolitical instability, weather that is impacting the price of grains and even natural gas and has influenced mining or crude oil strikes which impact metals. The factors don’t affect bond or stock market returns more importantly to a similar degree and the correlation between other asset classes and commodities has come down.
The low correlation of commodities to bonds and stocks shows what might be the main advantage of broad exposure and that is diversification. For a diversified portfolio, the movement of the asset classes would be in sync with one another, this leads to a reduction in the overall portfolio’s volatility. The consistency of the returns would be improved over time due to the lower volatility reducing the portfolio risk. It is impossible for losses to occur even with diversification.

Let we compare commodities, equities, bonds, and forex volatility :

Here is the little test for the last 30 days. Let us take the ADX indicator to measure volatility. Let us pick 10 most volatile assets in the last 30 days.
Here are my small test :

Equity Volatility
Shares in companies are included in the equity asset class and so are indices which reflect the overall volatility in the stock market or other sectors within each of the equity class. Trading or investing in the equity market is the most popular option among investors.
Major indices such as the S & P 500 or the Dow Jones Industrial Average normally experience a similar variance over time, unlike most stocks that do not experience such a degree of volatility. Stock prices do make significant moves in certain periods. Examples in which stocks were dramatically lowered include the recent global financial crisis in 2008, the stock market crash of 1987 and 1929.
The US is the most stable economy in the world and the US stocks are definitely much less volatile as compared to their counterparts around the globe. The market has ranged from highs of 27.23 % and lows of 5.35 % since the financial crisis of 2008.
Bond Volatility
A bond is a debt instrument that provides a coupon or yield to the holder of the instrument. Governments around the globe offer bonds just like companies. Bonds help finance businesses and countries by borrowing from the public. The different periods along the yield curve are looked at in the bond market by traders and investors who are active in the bond market. Short-term bonds are much more valuable as compared to long-term ones which investors only look at for a steady flow of income.
It is the Federal Reserve or the Central Bank which controls the short end of the yield curve in the United States. The interest rate is the Fed Fund rate which credit unions and banks would lend to reserve balances on an overnight basis. The Fed Funds rate is dictated and controlled by the US Federal Reserve. The minimum interest rate is the discount rate which is set by the Fed Reserve in the United States for lending to different banks. Market forces influence the prices of debt instruments and bonds, that have further maturities, and the Central Bank, on the other hand, controls the Federal Funds as well as the Discount rate.
The long-term and medium rates can be influenced by the short-term rates, but there would be divergences that would happen. Short or long positions can be taken by bond traders depending on how they view interest rates. A short position has a view that the rates would move higher, while a long bond position would bet that the rates would decline. Most of the bond traders position themselves just along the long and shore one maturity and the yield curve to take spread out and take benefit of pricing anomalies. A consistent and safe yield is what investors in the bond market look for in their investment nest eggs. Since the wake of the financial crisis in 2008, volatility has moved higher.

Currency Volatility
Since the United States is the most stable and richest economy in the world, the dollar is the reserve currency of the world. As compared to most other asset classes, currency volatility is normally lower due to the government controls on money supply and printing into the monetary system. To a large extent, governments control the money supply. The stability of a government is what the volatility of currencies is dependent upon. Therefore, the Pakistani Rupee has higher volatility as compared to the dollar for example. Other foreign exchange instruments can also be less likely to be reserve currencies as they are less liquid. Normally, the dollar index has shown a reading of below the 10 % level.

Commodities Volatility
Coming to commodity volatility, it is the asset class that tends to be highly volatile. Looking at just the volatility of crude oil, since 1983, it has ranged from over 90 % to 12.63 %. A similar metric is seen for natural gas. If we look at the natural gas variance on a shorter-term basis, the range has been over 100% on many occasions which shows just how volatile the commodity market can be for certain commodities.
The volatility in soybeans according to the quarterly historical data has ranged from 10 % to over 75 % since the 1970s. There has been a similar trend for corn and even the sugar futures market as well as coffee futures. Silver has experienced the range from 10 % to more than 100 %. On the other hand, gold is a hybrid commodity since central banks across the globe hold gold as a reserve asset. The yellow metal has a dual role which is of a financial asset and a metal commodity.
The hybrid nature of the gold prices has been reflected since the middle of the 70s wherein the quarterly volatility has been from 4 % to more than 40 %. This shows us that commodity volatility is high over time due to various reasons and some commodities and more volatile as compared to others.

5 Reasons behind Commodities Being More Volatile

So where is the secret ? Let us figure out why commodities are volatile?

Commodities attract investor interest through the years due to the bull market periods. There has been an increase in choice for participants in the market over the years because of the emergence of new market vehicles that trade on ETN and ETF products as well as traditional equity exchanges. Before their introduction, investors could only invest in commodities that did not have a futures account and could be done through the ownership of the physical commodity.
When traders look at the short-term advantages of commodities, they are keen on investing in commodities. Here are the five core reasons for commodities being more volatile than other asset classes.
1. Liquidity
There is much less liquidity that is offered by commodities on the futures exchanges. Even though gold and oil can be the most liquidly traded commodities, they can also be highly volatile due to various reasons.
2. Mother Nature
The weather is determined by Mother Nature and so are natural disasters that occur from time to time on our planet. A spike in the price of red metal would cause if there is an earthquake in Chile, as is the largest producer of copper in the world. The prices of soybeans and corn would skyrocket due to a drought in the US. While the recent cold winters have led to an increase in the demand for natural gas which has led to the energy commodity of the futures contracts skyrocketing.
3. Demand and Supply
At the end of the day, commodity prices are greatly influenced by demand and supply. Demand can be considered constant, while the production of commodities varies due to various reasons such as the climate, soil, and other factors. The demand is ubiquitous and the supply changing from time to time has led to the asset become highly volatile.
4. Geopolitics
It is almost impossible to leave out geopolitics from commodity variance. When countries go to war or place an embargo on a country that is a major producer, it leads to the prices of the commodity skyrocketing. An example of this can be the sanctions on Russia, Iran, and the Iraq-Kuwait war. Wars impact production and affect or even close off logistical routes which make it impossible or highly costly to transport the goods.
5. Leverage
Finally, leverage is something that needs to be looked at. Futures do provide a high level of leverage as compared to others, and it impacts the volatility of the commodities.

How Can One Invest in Commodities?

It might have been challenging to capture all of the advantages of commodity exposure in the past. Investors have been provided with another option due to investment vehicles benchmarking with commodity futures indexes and gaining exposure. Commodity exposure helps manage against a diversified index. Asset allocation has been done since the beginning of time which shows that it is beneficial.

Are there any Risks?
Although diversified commodity exposure does offer investors with various advantages, there are risks to commodities investment. During cyclical downturns, commodities might not perform well and if the industrial and consumer demand slows, there are other things that could impact it such as politics, natural conditions, and the market.

One more thing. We see in this text that commodities are Volatile Assets. A lot of people think that volatility is a bad thing, something as huge risk. No risk and volatility are different things and volatility can be a huge advantage in trading. Just try!

Emini Futures Trading Strategies

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Emini Futures Day Trading Strategy

E-mini is an electronically traded financial future on a commodity at a predetermined date and price. E-mini tips are a set of rules put forward by a group of expertise on trading to help those who are learning to trade. E-mini session has so many opportunities with lots of risks which can see you lose your capital if aren’t careful. To improve your trading, here are some of the vital steps that can help you during trading.
The E-mini Futures markets are seductive in nature as a trader can find huge opportunities. But along with them come different hazards. Navigating all through an E-mini session without losing your capital seems to be a daunting task as it seems. The trading course that we are going to teach you comes from a long experience of a 12-year-old trader. The strategies involved in the trading systems were highly developed to derive an optimum result. So we will now teach you about our best strategies on Emini Futures.

Trading made simple

Welcome aboard our website and to delve into E-mini Strategy, our team of experienced professionals will guide you with strategies straight into your mailboxes.

As mentioned in the beginning, trading Emini Futures is treacherous in nature and is a bit harder than single stocks. Further study reveals a few handfuls of strategies that work on E-mini trading. The E-mini S&P 500 represents one-fifth value of the normal S&P futures contract. Hence there is no doubt that Emini exhibits one of a kind price patterns with indigenous volatility. Also, we know that the law of demand and supply which governs pricing remains the same as trading that includes foreign exchange currencies, stocks and cryptocurrencies as well.

Want to learn about the practices of the future market? Well, we can guide you on strategies that relate to Futures Trading. Now let’s go into a detailed analysis of Emini day trading strategies.

The best Emini strategy

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My the best Emini Futures Trading Strategy Monthly Breakout

My top strategy is a weekly strategy where I am trying to keep trade for several weeks. My performance is 66% in the last 2 years for risk-reward ratio 1 to 1.
Step 1: I make a research about S&P 500 E-Mini with market analysis and analyst commentary. Using several websites, I want to see a positive fundamental analysis.
Step 2: Using basic technical analysis I draw a trend line on the chart and looking for important levels.
Step 3: I am looking for strong resistance like this at the 2944 price level. 1 whole month’s price couldn’t break 2944 price level. When price breaks this level I enter into trade. I made BUY entry at 2944 on September 4. I will try to keep trade for at least 1 week. Currently, I am still in buy level mode for this trade.
emini futures strategy breakout example
4) If I see huge fundamental news that is against my trade I will close trade earlier. My goal is to keep trade for at least 1 week to 4 weeks. My target is 2-4 Daily ATR.

Top 5 E-mini Trading Strategies That We Need to know from Theory

Available at CME that is the Chicago Mercantile Exchange, the E-mini line-up products give the traders an opportunity to choose from a plethora of products. This exchange offers a list of asset classes, which include equities, energies, metals & ag commodities. As there are different viable alternatives available it makes it super easier to find E-mini strategies that can work well.

To make a strategy absolutely viable, the strategy should have the capability to provide the trader the edge. What you should know is that an edge is always a competitive benefit or advantage which ensures that the strategies will be most profitable in the long run. Most of the E-mini strategies that are talked about are having a measurable edge. These strategies mostly fall into five chief categories. Let’s see what these top five strategies that work are.

  • Trend Trading
  • Momentum
  • Rotational
  • Swing
  • Breakout

Now let’s get to know about these strategies and how they effectively work.

1. Trend

Well, trend trading is one of the most effective emini strategy. One proved and tested strategy for trend trading is to sell or buy a Fibonacci retracement level in a concert with prevailing trends. Trend trading is popular since it improves the risk to rewards and can be freely applied among the versatile market. In a strong trend, it is ideal to enter the trades on a lower time frame.

For example, consider that the E-mini copper feature or QC has broken on to the time frames. In that case, buying pullback in the price that can offer a steady trade location will be a successful way to get in with the uptrend. Here’s how it can work:

Stop Loss: These orders are positioned under the fifty or seventy-eight percent Fibonacci retracement level. Entry: Buying orders from thirty-eight percent or sixty-two percent Fibonacci retracement level.The Profit target: Given the adequate time for the position so as to gain value, aligning at 1:3 / 1:4 ratio of risk to reward is perfect for any trend following.

 

2. Trading momentum

 

Momentum trading is a popular technique wherein the traders buy & sell according to the strength of the prices that are prevailing recently. In the financial market, momentum is determined by factors like the rate of price changes or trading volume. The momentum traders believe that an asset price that is going or moving in a particular direction will definitely continue to move in that particular direction until this trend loses its strength.

Among the short-term traders, capitalizing on the basis of the momentum of price action is one of the most successful and favorite approaches. Before the profits get locked in high-frequency strategies or scalping often end up relying on the spike in order to flow to drive price.

These particular strategies are mostly executed during periods of high volatility. For example consider that in April E-mini gold, a momentum trader anticipated a positive run following with a negative 8:30 am EST:

 

3. Rotational Trading

A compressed or rotational market usually exhibit uneven price action and lacks a particular direction. RT or Rotational trading is a medium-term technique that takes the advantages of a well-documented market. Herein a long term price increase is often followed by a movement in the same direction.

A Rotational market could be super challenging to trade efficiently as the most market structure is broken down. It should be noted that implementing the E-mini strategies which work for the rotational markets will take a lot of patience and time.
But compressed markets could also be rewarding n case it is approached according to the context of mean methodology. For example, consider it is a usual Monday for a June E-mini S and P 500 (ES). Now a mid-session range of forty ticks is already established from a high 2821.25 to a low 2811.25. Also, note that no economic events will be scheduled for late sessions. Now here is a strategy which trades the action:

Entry: sell within the eight ticks of high (2921.25) or buy within eight ticks of low (2911.25). Profit target: eight to ten ticks towards the point of control of the trading range. Stop Loss: You can place two ticks below the low for buy or above the daily high for a sell.

4. Swing Trading strategies

Swing trading is a category of strategy that focuses on taking small gains in the short term and cut down losses quicker. Well, you can say it is an attempt to secure the market share by holding on an open position for many consecutive sessions. The only thing to worry about swing trading is that involves large margin requirements & potential liabilities. You need to have greater risk vs rewards ad longer time frames to apply the other strategies to swing trading.

Finally, note that though using multi-session strategies can be highly profitable but it also involves a huge amount of risk.

5. Breakouts

Breakout trading is a good way to maximize your potential gains. Often these trades are used with a large amount of risk versus reward ratio with anticipation that there will be a sudden movement of direction in the pricing.

This kind of trading is used by active investors to take the position within the early stage of the trend. Breakouts are stock price moving outside resistance level or defined support with an increased volume. Breakouts are often followed by periods of constriction & they are often enhanced by the momentum trend followers or traders. Here is how breakout strategies look like:

 

How Do Trading Strategies For Emini S&P 500 works:

Unlike other futures contract Emini futures also works the same way, but S&P 500 works in its own separate contract specifications. The Emini has standardized specifications that allow for easy trade of which some are mentioned below:

One Emini contract is of $50 X the S&P 500 index value.The Emini moves in 0.25 point increments and each of those equals $12.50 in one contract. Contracts are made available in April, July, October, and January, which means, it expires quarterly. Emini S&P 500 Trading takes place between 6 pm on Sunday all the way to 5 pm on Friday. Although there is a halt from 4:15 to 4:30 pm daily.

We know the Emini is 1/5 of its standard futures contract, which implies if S&P 500 trades at 2900 the overall market value of the futures contract will be $145,000 (2900 X $50). A large amount of money can be controlled than your initial deposits because while trading Emini you are on a margin.

Why To Trade-In Emini Futures:

Getting a full display of the US stock markets is the purpose of trading the Emini strategy. Emini futures serve benefits for swing traders also as they are more preferable for day trading. Some other reasons for trading Emini Strategy are as follows:

With Emini futures trading around the globe, it helps you to take an upper hand of its price swings because trading can be done 24 hours a day. Deep liquidity and tight bid help in keeping costs down. You can trade global equity from a single marketplace. You can trade-in and out cheaply because of the large volume of trade through the Emini contract.

Strategy That Involves Emini Scalping, better or not?

Emini scalping is as good as a long term investment as it eliminates the risks attached to holding positions. Scalping also helps in the capitalization of price movements regularly. The key to a successful and long term stability when trading in Emini Strategy market is having an Emini Scalping Strategy. Use an indicator marked with small periods and use it for scalping. To be precise, use a 4-period setting in place of 14 periods setting for the Williams %R indicator. Scalping strategy does not work for anyone possessing a weak and undisciplined mindset.

Some Trading Strategies of Emini Futures You Must Use.

A suitable type of market environment can only help a trading strategy working and give you the desired results. Also, you might need the most accurate tools for the successful use of the trading strategies of Emini Futures. You must get well acquainted with the different types of market changes because of the trends in the Emini market. There are a whole lot of future trading strategies that you might come across from several Emini Strategy traders but you will need the right tools to put those strategies inline. Based on all the factors we came up with five Emini Strategies that might help you for successful trading:

Event-Driven StrategiesTime and Calendar StrategiesTrend Following StrategiesEmini Breakout and Emini Momentum Strategies.

Which Emini Strategy Is The Best?

Whether you are a swing trader or a day trader, the easiest way to make more money is to follow a trend. When you go inside and outside scalping Emini Strategy Futures chances are that you might make a loss and that would eat up all your previous earnings. Therefore follow a trend that is moving and grabs it for some time very close. With this mindset you will only earn more as E-mini contract inclines to close high on trending days. If you study Emini chart you will find a repeating pattern from time to time. Some experts say that the Emini Future has over 75% possibility of follow-through the subsequent day if it closes in the top 10% within its range.

Emini Futures Trading Strategies Tips

These tips can apply to Emini any trading strategies that we want to work on.

1.Trade The E-mini On A Schedule

Discipline consistency is considered a path to successful trading in E–mini. There are times of the day that are considered to be very hazardous for trading which can see you lose your capital due to unpredictability of the market.

Define your session and stick to it. Limit your trade to a consistent time to avoid the period that doesn’t worth your time. E-mini markets have a period where the graphs aren’t predictable hence avoiding such times can be worthwhile. There is the day that is worst for trading, that’s during the lunch hour break where most of the traders are out to take lunch and clear their mind. However, statistically, it has been proven that 10 a.m is the best hour to trade after initial orders have been cleared from open.

2. Don’t Be A Slave To E-mini Market.

Trading on an E-mini market requires one to have a consistent strategy and a well-defined goal. During the trade, try to at least have two winners and a positive result which can help you quit on your terms after a successful trade. If the target hasn’t been achieved try to be consistent until you achieve your ultimate goal. Making money is the primary goal and if it has been achieved then quitting is an option.


3. Use A Strategy With A Edge

Trading follows the law of demand and supply hence there are risks involved during trading. To ensure such risks from occurring and standout strong after trading you require a perfect strategy with an edge. Manually back-test can work perfectly whereby you test an eliminate failing scenarios as you discover your plan ultimately. With this at hand, you can perfectly come up with a working personal plan that can help you be successful in your trading through earning more money.

You ought not to follow what others do or say instead of work on your path until you discover what works best for you as far as your goals are concerned. Some traders have short-term goals hence following their strategy comes with huge risks.

One of the trading veterans come up with a perfect strategy that has stood with the test of time, it is called Counter-Punch Chop Indicator. This strategy makes trading E-mini futures much easier and interesting, it is worth trying due to its efficiency. You can download the strategy here “Counterpunch Chop Indicator” and more about it.

4. Trading E Mini Can Blow Your Account

E-mini trading futures might appear fancy and a walk in the park but truth be told it involves huge risk which if not taken into consideration may harm your account during trading. Risk management is vital to any trading hence you need to have a perfect working plan to navigate through to achieve your goals in a trade market. We all have a different perspective as far as risks are involved but math and probability have their law which we have to take into consideration.

There is a chance to have long losing streaks indicated by probability, you must manage your risks to sustain string of losers in your account. Counter-punch Chop Indicator can perfectly work to prevent such risks in short and long term trading. You just have mastered its patterns and what it entails to reduce and prevent risks involving trading.

A 2% rule on two points works somehow perfectly it is the average risks you put on an E-mini trade. This rule helps a trader to avoid the risks of losing his/her account that might be blown up during trading. In case the risk occurs you will only have lost 2% of your account hence putting you in a better position to still forge ahead and learn from the risk that occurred as you prepare yourself to come back strongly. As risks occur and learning from then you can easily come up with your perfect plan to trade. We can all agree that risks must occur but achieving your goals is dependent on how you curb such risks hence it’s paramount to been keen with such risks.

5. A trading Program Can Work Better With Instruction

For trading to be there must be a powerful road map to execute every single step with care. For a trade to be successful, the ultimate goal must have been achieved, the risks involved must have been insured perfectly and money has been made. To achieve all these a trader must have perfect instructions to be followed in every step to curb risks and realize the ultimate goal.
The instructions at hand must be precise to realize the ultimate goal of trading at E-mini. Come up with instructions in a trading program to tackle risks involved with a perfect spell time of trading. As a trader familiarizes with each set of instructions at the end you master each step thereafter success will be inevitable. At first, it must seem not to be working for the beginners but as you continue to trade you will realize the trading gets better and better after every trade.

Conclusion: How to develop Emini Futures Trading Strategies ?

In a nutshell, we can say that the trading strategies of the Emini Future will open up your chances to take leverage of the best trading environment. The market is crawling with plenty of ideas for the strategies of day trading with Emini Futures, but only a few come handy. It is recommended to construct your own plan regarding trading after discovering what is working better for you. A last piece of advice for you would be to understand the significance of risk management because if you don’t hold it for consideration, all your earnings might be gone in a while. It is unwise to gamble above a 2% total of your balance into trading.

Keep your strategy as you like. Just always look to have planned entry, stop loss and target position. The plan is very important.

They say discipline consistency can result in success. Trading at E-mini can help you achieve the desired goal of a trade by following each of the above set of instructions. Most of the traders fail by not sticking to their work plan and the fact of them, not the following instruction, not having a trading plan in advance hence turning a positive trading session to a negative one. If a trader can have a mentor that can help to be discipline and realize positive results. By following the above-stipulated set of rules belief and strong risk discipline – at the end of the day you will be ahead of many traders.

What is Paper Trading in Stock Market

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Paper Trading is a process of practicing stock trading without using real money. The phrase Paper Trade’ comes from an old stock market practice of writing down buying and selling orders of stocks on paper.

Paper trade is realized as having evolved as a result of the fact that investors at the stock exchange market had a great desire to be able to engage in the practice of trading, so they would resort to the usage of paper to record their investments and track the movements of the market. The wide array of trading markets attracts an abundance of traders who are new to the world of grading. Some new traders tend to be those who are seeking long term trades. On the other hand, there are some traders who are seeking to engage in conducting trades that are shorter term. It is noted that all new traders share the common trait of a bit of hesitation, which is comprehensible. As well, they also share the characteristic of being concerned about the possibility of experiencing a loss of money as a result of their trading decisions.

Make the trade

Though the truth is that there are risks associated with all forms of trading, there are several tools that are offered by brokers in an effort to aid new traders to be able to achieve improvements in regard to their skills in the world of trading. One of the tools that are provided is known as paper trading. But the reality is that you may not hear this term much due to the fact that it is often referred to as trading on a demo account within the context of the online trading world.

Investors have been permitted by stock market simulators to engage in practicing their skills in regard to stock trading during the past recent years. With this being the case, there is no requirement for the usage of money that is real when this trading is done online. As a result, this has empowered investors to be able to conduct a determination concerning how well their trade would have done in a real-live market.

In order to gain easy practice in regard to trading skills and to conduct phases of backtesting pertaining to strategies for the sake of the establishing of whether they are viable, investors now can use modern technologies to provide the right assistance with these issues. Consequently, this means that investors then possess an amazing advantage to see if the strategies that they apply to their trading decisions would have achieved good results during real-time.

Is paper trading free? Yes. You have a lot of trade simulators like Free TradeStation paper trading or if you like to trade currency pairs, commodities, major stocks you can use free Mt4 Demo account platform for free as well.

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Another benefit pertaining to the usage of stock market simulators is that they provide the enabling of investors to be able to completely embrace the details and nuances of the platforms of the brokers. This will provide the assurance that the investors will be able to conduct navigation with ease and will be able to gain a good comprehension of the manifold innovative trading orders which are present on the various platforms in the trading world today. They will be more fully exposed to the tools and features of the platforms. This will certainly take the guessing out of what is paper trade.

Nowadays, when stock trading has become easier to do from your own computer, many investors do not opt for brokers and try to do trading on their own. Such newbies who are inexperienced in trading can go for paper trading in which investors keep records of their trading orders and their gain/loss on a paper. Investors can also try stock market simulating tools that help them in learning trading skills and judge the risks that might occur in actual online trading.

Advantages of paper trading

Trading without risk – In paper trading, real money is not used for trading so there isn’t any chance of losing the money which eliminates the risk. Also, this type of trading is free to do (except you are using a simulator tool and it is not available to free).

Test investment strategy – Using paper trading, any new investor can try their investment strategies and test to see whether they will be successful in the real stock market. It is equally convenient for experienced investors who are trying their luck with a new strategy that hasn’t been used in the real market yet.

Confidence– Paper trading gives confidence to new investors of trying trading in the actual stock market. By practicing buying and selling multiple orders, investors can get themselves familiarised with the working of the market and can understand risk factors which will reduce their fear of trading.

Disadvantages of paper trading

Miscalculation of brokerage –Often, due to high brokerage and commission, the profit margin of orders is reduced. In paper trading, as this method does not involve any commission, an investor might make a mistake of miscalculating the brokerage. But while trading in the real world, it might become costlier for an investor, especially a new one, to buy or sell the stocks.

Absence of real risk– Paper trading does not involve the use of real money which totally reduces the risk of trading and investors tend to process orders very easily without any fear of losing the money. Due to which investors may not get an idea of a real risk that is present in the stock market world.

Fear of overconfidence – As paper trading comes with less risk in terms of using real money, investors might become overconfident if they do well in the simulating environment or if their strategies turn out to be successful. Real market scenarios are harsh, and investors might not be ready for them which will create a problem if anytime they face a loss.


Paper Trade Simulators

There are many useful paper trading simulators are available in the market that can be used by investors to learn the trading. Some of such tools are Investopedia Stock Simulator, the Warrior trading paper trading simulator, wall street survivor.

Stock Market simulators

Investing in the stock markets is risky and a person with no experience can make massive losses due to his ignorance about the stock market or lack of skills. Hence new traders are often told to use a Stock Market simulator to become familiar with the features of a stock market. They can practice buying and selling various stocks without taking any financial risk. Virtual stock trading or paper trading allows the investor to practice investing in the stock market. The virtual money is used to invest in a market that is similar to the real market. Though the simulator is popular among new investors, experienced investors may also use it for testing new investment strategies.

The market simulator is also used for educational purposes. There are many investment strategies that require expertise and technical knowledge of the stock market. Even small mistakes can cause losses to the investor. Hence these investors prefer to use the market simulator to perfect their investment strategies before actually investing real money. Some of these strategies involve creating different positions, leverage, short selling and trading in derivatives. There are many companies like stock brokerage firms that offer simulators to investors like demo accounts for 14 days. There are also tools which simulate online trading

Stock Market simulators types

The financial market and fantasy simulators are the two main types of simulators for the stock market. The simulators of the financial markets are using entries of real stocks, and trading using virtual currency. To ensure that the data is not misused, the simulators use a stock data feed which is delayed by at least 15 minutes. Others produce random data which is similar to real prices. They help the person using the simulator to decide whether the strategy is right. Fantasy simulators use items that would not be normally listed on the exchange, like television shows, sports, betting systems.


Stock Market simulators technology

Most of the stock simulators available online are developed using programming languages like C, C++, JavaScript, ASP, PHP with a database usually MySQL. While a few of the simulators are open source, in other cases, the simulator includes expensive software for predicting the stock market. The simulator engines are developed after extensive research and can be customized for other applications. They are often modified for tracking the popularity, ranking and for determining various trends in science, and other fields.

Stock market games

Games related to the stock market are speculative, and allow players to trade futures, stocks in a simulated or virtual environment. While many investors play these market games to gain experience, some of them play these games for entertainment. The players of these games may compete to find out who is able to predict the trends in the stock market accurately. Some the games use real stock related data from major stock markets like NASDAQ. The games may also include competitions for fantasy trading. Many prediction games include stock markets. However, in some cases, the simulator could be deceptively easy, and it may create the wrong impression for a person who has no stock trading experience resulting in losses.

Conclusion

Paper trading is a quite useful mechanism for new and experienced investors to educate themselves with the working of the stock market and testing of investment strategies. At the same time, before jumping into the real world of trading, investors should practice enough and be careful of the risks involved in the real stock market.

How Currency Futures Work ?

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Forex futures contracts

The foreign exchange (forex) rates for currencies are always changing depending on a number of factors, so a business trader may wish to ensure that currency is available at a specified rate in the future. Currency futures contracts are a type of forex futures contract for exchanging a particular currency to another at an exchange rate which is fixed on a specified future date. These future contracts are also called forex futures contracts or abbreviated as FX futures. Since the contract value for the future depends on the exchange rate for the currencies, futures contracts are considered to be financial derivatives.

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Currency forwards are similar to forex futures in many ways. However, unlike the forwards which are customized, the contracts for futures are standardized. These futures contracts are also traded on centralized exchanges. These currency futures may be used for speculative purposes or for hedging. Since speculators holding the futures can leverage their position, and the futures contracts are extremely liquid, the speculators will prefer to use currency futures instead of currency forwards. Typically one of the currencies in the futures contract is the US dollar.

Understanding currency futures

The forex futures or currency futures are standardized contracts for specified amounts, which can be purchased or sold at the exchanges. These futures are either physically delivered or cash-settled. For the physical delivery of the future, at the date of expiry, the currencies of the amount indicated in the contract must be exchanged. The cash settlement of the futures is done daily based on market prices. Since the prices of the currencies change daily, the difference is settled paying cash till the date of expiration of the contract. The contract can be closed at any date. Forex-futures contracts have multiple components.

Foreign currency futures contract componenets

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Underlying asset – this is the exchange rate which has been specified for the currencies

Expiration date – for futures that are physically delivered, it is the date when the currencies are to be exchanged. In the case of cash-settled futures, it is the last date when it will be settled.

Size – the size of a futures contract is standardized. For example, the currency contract for euros is typically standardized at 125,000 euros

Margin requirement – A margin is initially required to enter a futures contract and is called the initial margin. A maintenance margin is also usually specified. If the initial margin reduces below the maintenance margin, a margin call will take place. The trader or investor should deposit money to ensure that the margin is above the maintenance margin specified. Margins can be implemented since currency futures can be traded through clearinghouses and centralized exchanges. These margins reduce the counterparty risk when compared to currency forwards. Typically the initial margin and maintenance margin are four and two percent respectively.

How are currency futures used

Forex futures may be used for speculation or hedging like other futures. The FX futures may be purchased by a business that knows that it will require foreign currency in the future, yet does not wish to purchase the foreign currency immediately. This purchase will help the business in hedging against the volatility if any, in the currency exchange rate. On the expiration date, when the business has to purchase the currency, it will be guaranteed the exchange rate specified in the contract for the FX futures. Similarly, if the business knows that they will receive a large amount in foreign currency for payment, they may use futures for hedging.

Example – How can currency futures be used to hedge the risk ?

For example, the trader sells futures contracts on the euro (EURUSD projection down) to hedge its projected receipt because If the euro depreciates against the US dollar, the company’s projected receipt is protected.
how to use currency futures for hedging example

Speculators also use currency futures to make a profit. If the speculators expect the exchange rate for a particular currency to increase, he may purchase a contract for FX futures, hoping for a profit. The speculators can afford these contracts, since the initial margin, is usually very small compared to the contract size. The speculators can leverage their position, to increase their exposure to changes in the exchange rate.

The currency futures can also be used while comparing interest rates in different countries. If there is no parity in the interest rates, the trader may implement arbitrage, using borrowed funds, and a futures contract to make a profit. Investors who are interested in hedging will prefer to use currency forwards since these can be easily customized when compare to the standardized futures contracts. In contrast, currency futures are preferred by speculators since they allow leverage and have high liquidity.

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